Italy Crisis: Patriotic Italians Buying Up Bonds

In an atypical sign of nationalism and unity, Italian citizens everywhere are buying up their country’s debt, even as investors who fear they won’t get paid try to rid themselves of the bonds.

The country has one of the highest tax evasion rates in Europe, leading some to believe that Mario Monti’s rallying cries of unity have led to a rare patriotic wave sweeping the nation.

Profits

However, Italians – from normal citizens to Luca di Montezemolo, president of Ferrari – are not buying up bonds just for their country, as they stand to make a hefty profit. At rates of 5.5% and 6%, those with a stake in Italy’s debt have the prospect of returns that are hard to find elsewhere.

Though some foreign investors are dumping the bonds on fears that they will not get their money back, some have increased their holding of Italy’s soverign debt by up to 5% in the past two months. The move is risky and requires confidence that Italy will not default, but could prove profitable for those who took advantage of yields that rose above 7% at the beginning of the week.

Experts warn that despite many growing their holdings of Italian debt, the move to buy bonds cannot offset the greater trend of selling-off bonds. Foreign investors started the trend, as they have cut their exposure to Italy’s debt by 45 to 51 percent since the start of the year.

Additionally, even though levels have come down from 7% record highs, experts still view Italy’s borrowing costs as too high to continue supplementing its debt pile.

Currently, the third-largest economy in Europe is sitting on debt that is equivalent to 120% of their gross domestic product.

Italy ‘not for sale’

The buy-up of Italian bonds by Italian citizens may have started earlier this month, when businessman Giuliano Melani took out a full-page advertisement in the publication Corriere della Sella, pledging to buy 20,000 euros of BTPs (Italian Treasury bonds).

He urged his fellow citizens to follow suit, saying that Italy must show the world that it is “not for sale” and that the country should not be seen as another eurozone burden.

The advertisement appealed to pride of Italians and many followed, including construction company ANCE Teramo, who bought 300,000 euros in Italian bonds. Bioera, an Italian firm that sells natural products, said that it had invested 1 million euros in BTPs.

The move is also spurred by the memories of a profitable decade in the 1980s, when Italian treasury bonds delivered returns of up to 18%.

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